Transfer Your Clean Vehicle Tax Credit to Car Dealership as Payment on a Vehicle

From 2024 onwards, there could be a provision for you to irreversibly to assign your new and pre-owned clean vehicle tax credits to participating dealers. In return for this credit transfer, you will receive an equivalent financial gain from the dealer.

Payments for Vehicles through Clean Vehicle Tax Credit Transfers to Dealerships

Federal tax credits could potentially be utilized to reduce the cost of purchasing specific clean vehicles, which include electric, plug-in hybrid, and fuel cell vehicles. From 2024 onwards, you might have the option to assign your new and pre-owned clean vehicle tax credits to dealers who are eligible to receive advance payments of either credit. An equivalent financial benefit will be granted by the dealer as a return for the credit transfer. The IRS has recently clarified the regulations pertaining to such transfers.

Background Information

New Clean Vehicle Tax Credit

A tax credit up to $7,500, either personal or business, is available for purchasing a new clean vehicle that meets certain criteria. A $3,750 credit is available if a requirement for critical minerals is fulfilled and another $3,750 is available if a battery components requirement is met. Fuel cell vehicles assembled primarily in North America may qualify for the $7,500 credit without meeting these two conditions. However, this credit is not applicable for vehicles with a suggested retail price by the manufacturer exceeding $80,000 for vans, SUVs, and pickups, or $55,000 for other vehicles. The credit eligibility of vehicles can be checked on fueleconomy.gov.

The credit is typically not applicable if the purchaser’s modified adjusted gross income (MAGI) for the taxable year or the preceding taxable year (whichever is lesser) surpasses $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of households).

Pre-Owned Clean Vehicle Tax Credit

An individual tax credit, equal to the lesser of $4,000 or 30% of the sales price, is offered for purchasing certain pre-owned clean vehicles from a dealer. This credit is only applicable for the first transfer of the vehicle after August 16, 2022, to an individual other than the original user of the vehicle.

This credit is not available for vehicles with a sales price exceeding $25,000. Further, it’s not applicable if the purchaser’s MAGI for the taxable year or the preceding taxable year (whichever is lesser) surpasses $75,000 ($150,000 for joint filers and surviving spouses, $112,500 for heads of households).

Clean Vehicle Tax Credits Transfer

From 2024, there may be a provision for you to permanently decide to assign your new and pre-owned clean vehicle tax credits to dealers who opt to join the program. Following the sale, the dealer can receive advance payments of either credit from the IRS. For transferring the credit, the dealer will offer a financial benefit equal to the credit to you in cash or as a partial payment or down payment for the vehicle purchase.

The IRS has provided further guidance on these transfers.

In the case of the new clean vehicle tax credit, only the portion of the credit associated with personal use can be transferred to the dealer, and only if the vehicle will be predominantly used personally. You need to certify your eligibility for the credit at the time of transferring it to the dealer, even though your eligibility for the MAGI requirement may be uncertain. If your MAGI exceeds the limit for the year, you will need to repay the amount received for transferring the credit as an addition to the tax in the year the vehicle was put into service. If the credit amount you decide to transfer to the dealer surpasses your tax liability, neither the dealer nor you will be required to recapture the excess.

In a year, you can make a maximum of two transfer elections (your spouse can also make two transfers). The elections can be for two new clean vehicle tax credits or one new and one pre-owned clean vehicle tax credit.

Whether you claim the credit yourself or transfer it to the dealer, the credit must be reported on your federal income tax return.

The payment you receive for transferring the credit doesn’t need to be included in taxable income. Regardless of whether you claim the credit yourself or transfer it to the dealer, your tax basis in the vehicle must be reduced by the credit amount.

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